《On the Job training Estimaing Returns Using Firm Level Data》.pdf

On-the-Job Training: Estimating Returns Using Firm Level Data∗ Rita Almeida The World Bank Pedro Carneiro University College London and Institute for Fiscal Studies January 2005 Preliminary and Incomplete Abstract This paper fills in a major gap in the empirical literature on training by estimating the private return to training using firm level data. The literature has neglected the cost side of this investment and focused solely on quantifying the benefits of training. The coverage and quality of our data allows us to improve the existing literature in several dimensions. We find that, unlike schooling, the foregone output cost of training accounts for 75% to 90% of the total cost. This is not surprising given that in our sample firms train less than 1% of hours worked. Moreover, we estimate that more than 50% of the training takes place outside the working hours and is not associated with lower output. We also quantify the effect of training on current and future output. Even tough disentangling correlation and causality bears difficulties, we use the Blundell and Bond (1998) estimator to address this issue. We find that increasing training per employee in 10 hours (approx. 0.5% of total hours worked/year), leads to an increase in current output of 1.5-4%. Changes in future output are smaller since knowledge depreciates over time due to worker turnover. These estimates imply that the median private return to training is higher than 200%. This number is high but it is